Hands off small business?

Entrepreneurs could do without the government actively hindering their efforts, says James Hurley

Cobra founder Karan Bilimoria is an affable and witty chap, but the cross bench peer and Gordon Brown’s former ‘national champion’ for entrepreneurs is hardly anti-establishment.

So when you hear him accusing the government of failing to do enough to help small firms and entrepreneurs through the downturn, you know something’s up.

Speaking at a reception for Asian Business last week, Lord Bilimoria called for tax incentives and a government backed funding scheme for small businesses, while labelling the current lending arrangements inadequate.

Interestingly, he pointed out that £360m has been lent through the much maligned Small Firms Loan Guarantee Scheme (SFLG), a sum that’s dwarfed by the £12.3bn lent by the US equivalent.

Even when the banks were lending, the SFLG was never a vehicle of choice for funding small businesses. The thinking behind it is sound enough; bridging the gap between where a business has a viable plan but inadequate funding and collateral is a laudable aim.

But the scheme never really worked – banks have always found it too time-consuming to administer, and in any case, it’s not profitable enough for them to bother with. Even when the government is willing to guarantee 75% of the loan, once they’ve jumped through all the hoops, it’s not worth the banks’ time to stump up the 25%, whether they’re in the mood to invest or not.

The last few weeks have seen all kinds of suggestions for how entrepreneurs can be better supported through the financial crisis, including various confused messages and point scoring measures from the Tories. One of the most recent proposals, ahead of next week’s pre-budget report, comes from the Federation of Small Businesses (FSB).

The FSB suggests replacing the Small Firms Loan Guarantee scheme, in the short term at least, with a £1bn ‘survival fund’, while simultaneously urging the chancellor to scrap the planned increases in corporation tax.

Firms with a turnover of under £5.6m and employing less than 250 staff would receive priority from the temporary body, which would distribute short term funding during the recession.

It’s interesting that most of the headlines have been grabbed, unsurprisingly, by the £1bn survival fund, when the central pillar of the proposal should actually be the calls for the corporation tax increases to be shelved.

Incredibly, there are around one million more businesses trading now compared with 1997. Even if you take a Darwinian view of the UK’s entrepreneurial ventures that were funded by cheap and easy credit, the least small businesses should expect is the status quo. Entrepreneurs don’t necessarily need help, but they could do without the government actively hindering their efforts.


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